Findings From Platformable’s Open Banking Trends Report Posted in Open Banking Tyler Charboneau July 3, 2020 We review findings from the Q1 2020 Open Banking Report by Platformable. We’ve previously touched on how APIs are revolutionizing financial inclusion in developing regions. The API economy has facilitated global open banking—spurring institutions, developers, and tech professionals to participate. A year has passed, and Platformable’s Marky Boyd wants to see how far we’ve come. Whether or not open banking is the “tide that [raises] all boats” is a tricky question. Open Banking Quarterly Trends Report Q1 2020 by Platformable tackles it head-on. We’ll break down Boyd’s research while offering our own two cents on the matter. Quick Analysis: Open Banking’s Global Participants The open banking explosion has birthed a host of new considerations for many. According to Boyd, five key demographics play crucial roles: Banking institutions, whose APIs power a number of services across the financial landscape Fintech workers who utilize banking APIs during their day-to-day operations Consumers—including households and small businesses—who use banking products and services to boost their financial health The under-served, who may lack access to digital tools or bank accounts altogether—or those living in a financial “vacuum.” API industry figures, who create content for banks and fintech organizations The Platformable team has determined guidelines, catered to each group, which aim to improve open banking’s growth worldwide. Members of each group have responsibilities to the greater system, and these suggestions reflect the holistic nature of open banking’s current hurdles. Also Read: CGAP Revolutionizes Financial Inclusion in Developing Regions Analyzing Banks API development is an expensive endeavor, especially when the purveyors of those APIs service thousands (or millions) of customers. These solutions must be privacy-centric, secure, and accessible to developers and general users, transitively. Traffic numbers help determine an API’s long-term viability—if users don’t engage with API-based products, banks will have little incentive to maintain them. They’ll also be less likely to extend those services to additional locations. That’s not to say the onus is on users. Like with any obscure product, creators must drive awareness of features and benefits. Banks must also provide services in response to market demand. The need for remote banking in the COVID-19 is immense—simpler money management and transparency are chief concerns for those impacted. These factors should form the yardstick with which banks measure their success. Banks must also support their development teams during the creation of these internal APIs. Reaching out to developers and bolstering API hardiness is vital. Key Metrics and Trends APIs become part of the banking business model, and establishing insightful KPIs will determine the value of those services over time. How have banks responded to this open-banking transition? The number of global API banking platforms grew nearly 19% between Q4 of 2019 and Q1 of 2020 Europe experienced the most statistically-significant growth of banking platforms (76 to 91)—a 29% increase. The Asia-Pacific region still boasts the highest ratio of API products to API banking platforms. Overall growth in Africa has remained meager. The UK has seen a reduction in API platforms, reflecting the presence of open banking regulations. More APIs are hitting the market, and diversified functionality has also arrived in certain regions. Payment services and confirmation-of-funds APIs have vaulted to popularity in Europe. Banks aren’t just hoarding their APIs, either—they’re partnering with third parties to boost adoption. The report even claims that one bank opened 72% more accounts, while transaction volumes grew by 92%. External API use was instrumental in this growth. We can expect similar success on a grander scale once more banking portals soon announce partnerships. That positive global momentum has been undeniable: Statistics courtesy of Platformable. Accounts and payments account for 56% of all bank API products—driven by consumer and developer demand. Furthermore, banks are becoming mature players in the API space. Over 83% of bank APIs are in production, while nearly 8% are in open beta. Financial institutions are hurrying to capture market share, and all indications tell us this trend will continue. Analyzing FinTech For FinTech operators to provide account information and patient initiation, they must be accredited in their respective regions. At the close of 2020 Q1, there were 274 certified operators worldwide—111 of which held that status before 2019 in Europe, the Nordics, Eastern Europe, and the UK. These sectors entered the market without open banking’s influence. 59% of fintech startups only operate in one country to start, whereas 16% of overall providers operate in 2-20 nations. Interestingly, 24% of those 274 operators are permitted to work in over 20 countries—though this may be a smaller figure than previously anticipated. The report’s tone reveals this to be a small percentage, and it indeed may be when global accessibility is the endgame. Three main product categories rule the fintech market: Enterprise financial software Payments services Deposits and lending services (dominated by personal financial products) The Platformable team is monitoring fintech’s promising global growth while noting the emergence of OBN Global. This firm alone claims accreditation in 31 countries across Europe. While fintech operators are popping up and an impressive clip, Boyd notes that consolidation is gripping both Europe and Latin America. Numerous developers are flocking to a small number of organizations’ products. Analyzing Consumers Open banking and consumerism aren’t highlighted often enough, even though open banking yields many benefits. Access to open banking products promotes better financial decision making, reduced stress, lower debt, and higher long-term flourishment amongst small businesses. These products have a measurable impact on personal financial management. Regulators are hoping to stimulate banking API competition and development—ultimately shooting for improved customer support and wealth generation. This is the goal of regulators, though bank transparency has remained somewhat muddled. It seems that banking portals don’t discuss benefits for the end customer. Additionally, bank representatives often struggle to define how the customer experience is evolving. This makes it harder to assess institutional behavior. End consumers have welcomed modernization, though there’s cause for concern in specific areas: Digitization and the cashless movement cannot leave swaths of customers behind. Customers need reliable access to services while sheltering remotely due to COVID-19. Data privacy is an ever-present priority when dealing with personal financial information. Ironically, regulations and relief efforts have hampered the growth of API-based banking products. Pandemics and crises have highlighted the central support role banks play. Brick-and-mortar businesses are suffering amongst shutdowns, but banks are bridging the access gap by linking small businesses with remote customers. Researchers noted how the partnership between DBS Singapore and startups have made food delivery possible. In the United States, APIs have accelerated the processing of small business loans. This ensures both short and long-term financial health while supporting local commerce. Lastly, many types of services have emerged, thanks to bank APIs: Savings and revenue sharing Personal financial management and savings offers Credit and lending Payments, cards, and accounting Financial and business management Consumers are receiving new support thanks to the open banking movement. There’s also a measurable financial gain. The UK Open Banking Implementation Entity even claims an average benefit of 230 Euros annually for consumers. Analyzing the Under-Served We often consider under-served markets to be emerging markets—as banks and developers haven’t provided open banking options for citizens. Latin America, Africa, and the Asia-Pacific region are hurting for solutions. While bank APIs can improve outcomes for middle and upper-class individuals, those without ample resources are often left behind. Consider that 35% of all financial services APIs stem from banks in these regions. These banks aren’t producing APIs as readily due to expense, partner immaturity, and perceived competition. In markets where banking goliaths rule, the result has been a concerning lack of innovation. The same goes for motivation. No banks in these regions have engagement outlets for external developers. We spoke earlier on the role developers have played in driving account creation. When these entities are stagnant, customers have fewer services to engage with. Boyd notes that culture may be influential. Traditionalist cultures rely less on technology in daily life. Meager development in IT infrastructure means less room for digital growth. However, telecoms and payment services are gradually entering the market with basic financial management tools. This pace pales in comparison to Europe’s, for example. Analyzing the API Industry Nearly a quarter of API service providers have customers in banking and fintech. This is an incentive enough to drive partnerships and application development. That said, there is plenty of room for improvement—as only 9% of providers target the banking industry with their content. Only 7% have published blog posts aimed at these entities, a clear indicator of where priorities currently lie. Banks have driven the growth of financial APIs in the tech industry, by and large. Banks are known to support open source projects. They are also large customers, which is attractive to API providers. Companies in the API realm have plenty of room to expand their reach, lest they remain eternally dependent on banks for support. Engagement mechanisms also influence this development buzz. These change wildly from one region to the next. Developers who feel more supported and more informed around local bank APIs are more likely to create needed solutions. This has improved globally between Q4 of 2019 and Q1 of 2020. Open Banking is Primed for Future Success While Platformable acknowledges that different groups have contributed unevenly to open banking, there’s also plenty of optimism. Banks are realizing just how valuable these APIs can be, both for their bottom line and their customers. Larger institutions are leading the charge. However, this financial leadership does appear to be regionally dependent. We can attribute these differences to regulatory bodies, infrastructure, and product variety. Discussions around open banking are in various stages globally—they’re also unique to each country. Observers may be surprised to note differences between major powers, such as Canada, the United States, the UK, and Japan. As open standards and security keep pace with evolving demands, we can expect the programming universe to prosper—though those roads aren’t equally paved.